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Petitioner contends that section 865 compels symmetrical
treatment for gains and losses. Since it is a U.S. resident,
petitioner argues that its loss from the sale of the Paty stock
must be sourced in the United States. See sec. 865(a)(1),
(g)(1)(A)(ii). Respondent, on the other hand, contends that
section 865 applies solely to the sourcing of income from the
sale of personal property. The rules governing the allocation of
losses, respondent maintains, remain those contained in
regulations promulgated under sections 861(b) and 862(b).
Respondent argues that the Tax Reform Act of 1986 did not modify
the preexisting regulatory rules respecting the allocation of
losses from the sale of personal property.
Section 861(a) provides rules for sourcing gross income
within the United States, and section 862(a) provides similar
rules for sourcing gross income from sources without the United
States. Section 863(a) authorizes the Secretary to prescribe
regulations specifying the methods of allocation for expenses,
losses, and deductions that are derived from domestic and foreign
sources. Section 1.861-8(b), Income Tax Regs., provides that
deductions are allocated to the class of gross income to which
they are definitely related. Section 1.861-8(e)(7), Income Tax
Regs., provides rules for the allocation of losses on the sale,
exchange, or other disposition of a capital asset or property
described in section 1231(b). Pursuant to its provisions, such
losses are considered definitely related and allocable to the
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